Eurozone recovery stops dead

After four quarters of meager growth, the fragile economic recovery in the 18-country eurozone creaked to a halt in the second quarter. Growth was zero. After only 0.2 percent in the first quarter.

"[T]he eurozone still faces significant growth constraints," said Raj Badiani, European economist with IHS, in a report, noting that the unemployment rate in currency union is 11.5 percent. "Fiscal policy is still generally restrictive, despite increased flexibility over countries' fiscal targets, and tight credit conditions persist in several countries amid still significant banking sector problems."

Now who will get out and push? The European Central Bank (ECB), with a further monetary stimulus? Or governments in France and Italy, which have dragged their heels in making their economies more business-friendly?

Either or both could help. Especially if the Ukraine crisis mushrooms with a Russian invasion that would scare off business investment even more - and extend one bad quarter into an outright recession.

Few economists think the eurozone will slip back into its third recession in six years. Most expect only a slow recovery as Europe continues to work down its debts.

"It's still going to be a slow recovery for the eurozone and it will be a slow recovery for eurozone markets for imports from the rest of the word," said Tom Rogers, senior economic adviser to the EY eurozone forecast.

Germany let everyone down by shrinking 0.2 percent in the second quarter from the previous three-month period. Economists aren't too concerned because they think a lot of the growth simply migrated to the first quarter because of a very warm winter that let construction start early. Europe's biggest economy remains the continent's standout performer. It has low unemployment and took steps to cut business taxes and costs years ago.

Rumors of war

The "Putin effect," as economists at Berenberg Bank call it, comes from fears that Russian President Vladimir Putin may back an invasion of eastern Ukraine where pro-Russian separatists are fighting Ukrainian government forces. That worry is making businesses hesitant to invest.

Though eurozone exports to Russia are only 0.8 percent of the bloc's annual gross domestic product, the crisis has hurt business confidence -- executives are wary of risking cash for expansion, just as they were getting their mojo back after the debt crisis of the past few years. Business surveys like Germany's Ifo show the fear is taking hold.

Ukraine fears have only grown since the end of the quarter on June 30. Since then, the shooting down of Malaysia Airlines Flight 17 over Ukraine on July 17 -- by a missile from territory held by pro-Russian separatists, according to the U.S. and Ukraine -- has increased tensions dramatically.

Rotten to the core

Stagnating France and Italy are balking at politically tough reforms that would lower costs for businesses. France's economy was flat in the second quarter. Italy's shrank 0.2 percent, for the 11th drop in the past 12 quarters.

So-called structural reforms include easing rigid rules on hiring and firing, and especially in Italy's case, reducing choking bureaucracy and corruption. France has tried cutting payroll taxes to help business but further steps have stalled. Italy's Prime Minister Matteo Renzi came into office six months ago promising fast change, but now says reforms will be rolled out over the next 1,000 days.

This time it was Europe's core economies that were the problem, even as smaller, so-called peripheral economies are recovering from the debt crisis that ravaged the currency unions. Spain and Portugal both showed robust growth of 0.6 percent.

And Greece, the country at the forefront of the debt crisis which has seen its economy shrink by around a quarter over the past few years, is on the mend. Its economy was only 0.2 percent smaller than it was the year before, the smallest rate of decline in nearly six years. Greece does not report quarterly figures.

Last call for stimulus?

The ECB will likely hear more calls for it to roll out more monetary stimulus for the flagging economy. It could do that by buying large amounts of financial assets such as government bonds, using newly created money - something only a central bank can do. It's called quantitative easing, or QE. In theory, it could drive down longer term interest rates even more and pump new money into the financial system in hopes of seeing it appear as loans to companies and consumers. But it's tricky in a currency zone with 18 different members.

"The stagnation of the eurozone economy in the second quarter further underlined the need for the European Central Bank to take bolder policy action to address the continued weakness of the economy and the associated risks of deflation," said Jonathan Loynes, chief European economist with Capital Economics, in a client note.

The ECB is watching another worrisome indicator. Inflation is too low at 0.4 percent and that is raising fears of a downward price spiral that kills growth by making consumers delay spending in hopes of cheaper bargains down the line.

The ECB has already cut its key interest rate to a record low of 0.15 percent and is offering cheap loans to banks. It says it's waiting to see how those steps work, and could do QE only if things take a serious turn for the worse.